Sale of Capital Goods under GST

Sale of Capital Goods under GST law - relevant sections and rules are briefly discussed below:

As per Schedule II” CGST Act, Para 4 (a) - Transfer of business assets will be treated as supply of Goods:

As per Schedule I” CGST Act, Para 1 – Permanent transfer or disposal of business assets where input tax credit has been availed on such assets will to be treated as supply even if made without consideration

Section 18 (6)” of CGST Act – “ In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.

Rule 44 CGST sub-rule (1) clause (b) for capital goods held in stock, the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years.

Illustration:

Capital goods have been in use for 4 years, 6 month and 15 days.

The useful remaining life in months= 5 months ignoring a part of the month

As per Rule 44 (6) CGST Rules The amount of input tax credit for the purposes of sub-section (6) of section 18 relating to capital goods shall be determined in the same manner as specified in clause (b) of sub-rule (1) and the amount shall be determined separately for input tax credit of central tax, State tax, Union territory tax and integrated tax:

Provided that where the amount so determined is more than the tax determined

on the transaction value of the capital goods, the amount determined shall form part of

the output tax liability and the same shall be furnished in FORM GSTR-1.

As per Rule 28 of the CGST Rules, 2017- “Value of supply of goods or services or both between distinct or related persons, other than through an agent” provides the valuation methods for the determination of value of supply. Accordingly, the Rule 28 of the CGST Rules, 2017 provides 4 methods to determine the value of supply, are as follows:

1. Open Market Value (“OMV”) Method

2. Like kind and Quality Method (Or comparable method)

3. Cost Plus Method (Rule 30 ) - Rule 30 – If value of supply of goods & services are not determined with the help of Rule 27 to Rule 29, than the value of supply shall be 110% of the cost of such supply.

4. Residual Method (Rule 31 ) - Rule 31 – If value of supply of goods & services are not determined with the help of Rule 27 to Rule 30, thanvalue of supply shall be determined using reasonable means consistent with the principals and general provisions of this chapter.